- NAFTA prompted large expansions of beef and pork feedlots in Alberta, allowing for more export opportunities
- The U.S. is Canada’s biggest beef and pork export customer, but other markets around the globe are becoming increasingly important
- Premium grain-fed beef readies Canada for growing export demands
Between 60 and 70% of Canadian pork, and about 40% of Canadian beef, is sold abroad. Millions of live hogs and hundreds of thousands of live cattle, both for slaughter and further feeding, are shipped annually to the U.S. alone, further strengthening Canadian pork and beef producers’ reliance on export markets.
Ratification of the North American Free Trade Agreement (NAFTA) in 1994 was a key step in the evolution of Canadian red meat exports.
“Prior to 1989, the Western Canadian beef sector was dominated by small feedlots. The Canada-U.S. Trade Agreement – the precursor to NAFTA – spurred investment, including the construction of Cargill’s beef processing facility at High River, Alberta, in 1991,” says Brenna Grant, Manager of Canfax Research Services.
Exporting to different culinary cultures – ones that prefer different cuts of meat – also increases carcass value.
Soon after NAFTA was signed, the Lakeside beef packing facility at Brooks, Alta., was expanded. Favorable exchange rates led to expansion of the beef cow herd, and the removal of the Crow Rate for hauling grain by rail in 1996 provided more affordable feed grains on the Prairies.
Combined with provincial government incentives, these factors spurred feedlot expansion and consolidation in the late 1990s. By 2001, there were 210 feedlots in Alberta feeding 2.39 million head – more than double the capacity of the province’s cattle feeding sector a decade earlier.
NAFTA had a similar effect on the Canadian pork industry, stimulating an era of prosperity and growth – although not without blips – from 1996 to 2006, according to Statistics Canada. The Canadian pig herd peaked at just over 15 million head in the mid-2000s.
Since the early 2000s, Canadian cattle and hog markets have been rocked by animal health events like bovine spongiform encephalopathy (BSE) and porcine epidemic diarrhea virus (PEDv), world-record feed grain prices, a volatile Canadian dollar and foreign trade policies like the U.S. mandatory country of origin labelling (COOL). Despite these challenges, Canada remains a net exporter of beef and pork.
The U.S. is Canada’s biggest customer, taking 72% of beef and 32% of pork exports, but other markets around the globe are increasingly important. In 2015, Canada’s other major export destinations were China and Hong Kong, Mexico, and Japan. Similarly, Japan, China, Europe, Mexico and Russia were the biggest buyers of Canadian pork in 2015, after the U.S.
“Global market trends are extremely important to Canadian beef and pork producers; this is where the biggest opportunities lie,” Grant says. “Exporting to different culinary cultures – ones that prefer different cuts of meat – also increases carcass value.”
Statistics indicate the Canadian livestock herd may not be growing right now, but elsewhere in the world, beef, pork and poultry production are on the rise.
According to Brett Stuart, president of Denver-based Global AgriTrends, both beef and pork production are expanding in the U.S., with increasing cow numbers and construction of new hog barns and pork processing facilities.
As the world’s largest pork-consuming nation, China is a key driver of world pork markets and an important economy to watch.
“Chinese pork imports surged in 2016, but Chinese hog farmers have experienced record profits and are beginning to expand,” Stuart says. “This will eventually reduce demand for Chinese pork imports and have a major impact on all global protein markets. Where will one million tonnes of Canadian and European pork, previously destined for China, go?”
Grain-fed beef advantage
While Canadian pork producers have targeted the ultra-high-end market in Japan, there remains little differentiation between Canadian pork and that from other countries. The same cannot be said for beef, Stuart maintains.
“In general, North American beef is a grain-fed, high-quality product that brings premium prices. In the last seven years, as global beef production has stagnated, tighter beef supply caused grain-fed beef premiums to emerge.”
India recently became a leading global beef exporter, supplying large volumes of low-quality water buffalo meat to emerging markets such as Middle Eastern and Northern African – MENA – countries. Brazilian beef is also exported in volume, but is predominantly grass-fed.
“Every country has a high-end hotel, and the gold standard in these hotel restaurants is grain-fed beef. As global economies grow, demand for grain-fed beef will grow,” says Stuart, citing a recent study predicting the global middle class will increase by three billion people by 2030.
Despite major changes in the red meat sector, traditional cattle and hog market cycles prevail as relevant indicators of the future.
“Cycles of the past have been driven by the biological lag between when producers receive the price signal to expand or contract their herds, and the length of time until they can actually achieve that change. Hog cycles are typically four years in duration, with beef cycles lasting ten to twelve years,” Grant explains.
“Market information is more readily available now than in the past, meaning producers respond faster with their production decisions, but markets will always involve sentiment swings from optimism to pessimism.”
Increased productivity and larger carcasses mean fewer cows and sows are required to produce the same amount of red meat domestically, rendering national cow and sow herd numbers less indicative of the current stage of the market cycle.
“Breeding herd numbers are still an indicator for industry optimism,” Grant adds, “but carcass weights are increasingly important. Higher carcass weights, as animals are on feed longer, can have a substantial impact on production.”
Preparing for the future
Stuart recognizes that the U.S. may have the upper hand with larger pork and beef production volumes and lower processing costs, but believes the Canadian industry has its own strengths to build on.
“As a smaller producer, Canada is more nimble at meeting consumer demands. For example, the Canadian beef traceability system offers a point of differentiation, and Canadian pork producers were willing to discontinue use of the growth-promoting agent ractopamine because of their strong reliance on exports. Smaller Canadian packers are also more willing to accommodate requests from overseas customers for unique meat cuts.”
Grant encourages Canadian beef and pork producers to continue responding to market signals.
“There is no longer a homogenous group of consumers,” she explains. “Many consumers make purchases based solely on price, but others are looking for specific qualities or attributes.
“For example, in the last five years we’ve seen more focus on high quality (AAA and prime) beef production, based on price signals from the market. At the primary producer level, attributes like ‘no added hormones’ or ‘sustainable’ are growing. Substantial price premiums don’t exist for them yet, but could appear in the future,” Grant says.